arrow electronics inc - glim
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IntroductionArrow/Schweber Electronics (A/S)
Subsidiary of Arrow Electronics
Arrows North American operations headquartered at Melville, NY
Founded in 1935 to sell radio equipment's and gradually positioned itself as abroad-line distributor of electronic parts, including semiconductors and passive
components by successive acquisitions.
In 1992, it reached #1 position
Arrows largest working group with sales of around $2.07 billion in 1996
Arrow Electronics is a global provider of products, services and solutions to industrialand commercial users of electronic components and enterprise computingsolutions
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Company History
1935 Founded & positioned itself into a broad-line distributor of electronic parts
1968-1980 Acquired #2 position
1992 reached #1 position among electronics competitors
1980economic recession & death of companys top 6 officials and 8executives
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Operations StructureFive Operating Groups distinguished by product & strategy
Zeus Electronics semiconductors to military and aerospace customersAnthem Electronics and Arrow/Schweber semiconductors to industrial customers
Product Driven Groups
Gates/Arrow Distribution computer systems, peripherals & softwareCapstone Electronics passive components
These operating groups being individually responsible for asset & materialsmanagement and P&L
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Arrow/Schweber Technical certification of its field sales representatives Dedicated investments in product management
Six Regional VP 39 Branch/General Managers
Field Sales Representatives Inside Sales Representatives Product Managers Field Application Engineers Administrative Personnel Additional Managers
Organization Structure
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Express Parts Independent Distributor
Internet-based trading system around multi-distributor bulletin board
50000 OEMs to use its service
Takes care of shipping to customers
Fee worth 6%
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Product and Suppliers
A/S
Propriety
Standardized
Singularsuppliers
Multiple suppliers75%
25%
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Only franchised distributors 56 suppliers in 1997 and growing big four
Altera Intel Texas Instruments Motorola
Suppliers
Two chip categories Standardized chips -
interchangeable and produced bymultiple suppliers
Proprietary chips - manufacturedby a single supplier
comprehensive services
Products &Services
OEM Contract Manufacturers Customers buying customized, computer
product sub-assemblies
Customers
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Distributor/Customer Relationship
Transactional customers are thosethat place requests-for-quotes withdistributors simultaneously
Mostly Book & Ship
25% of business
Conversion to relationshipcustomers: 50%
Relational customers are those thatdistributors use value-addedproducts to build relationship with
Mostly Value Added
Cross Selling
75% of business
Initially mostly transactional
Transactional customers Relational customers
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Discount
Winning business through Engineering support and Design Work Higher Discount
Design Win
Winning business based on Competitive pricing by manufacturer No extra margin
Jump Ball Win
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Analyzing the Market: Porters Analysis
Bargaining power ofsuppliers On design wins: Low On Jump Ball: High On standardized products:Low On Proprietary products: High
Bargaining power ofCustomers Transactional customers:Shop around for best prices,May convert to relationships Relationship customers
New Entrants
Moderate barriers to entry New entrants need to buildrelations with suppliers
Competitors Avnet Inc
Foreigncompetitors
Substitutes
Direct dealing with suppliers Managing services bythemselves Shopping on the internet(disintermediation)
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4 P - Analysis
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Arrows Selling effort No. 1 among electronics
Distributors 60% sales from Value Added
Content Credit facility Value added services Cross selling
Strengths Weaknesses
ThreatsOpportunities
Strong online presence Collaboration with Express Learn to how to sell against
Going out of business
Reduction in Operating Incomein 1996
Expenses at 11% with Grossmargins of 15% No online presence Low switching cost for
customers
Express as a competitor Cannibalization of BAS business
if Express proposal accepted Competitors making online
business model
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Arrows Selling effort Book and Ship (BAS)
Real time, On-line computer system tracking costs, prices & inventory movement300 Branch based sales & marketing representatives (SMRs) responsible forsecuring business from customers requesting quote, obtaining discounts fromsuppliers and shipping productGross margins on BAS products-20% to 25%
Value Added (VA)
Design win Situation- Order originated by field engineering, facilitated by field salesrepresentative (FSR)400 FSRs visiting customers design engineers (10 -12 per FSR) and promote new
productsGross margins on VA products-10% to 15%
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Express Parts Non franchised distributor Internet based trading Multi-Distributor bulletin board Quick cross reference equivalent parts Cost competitiveness Popular with price sensitive customers Margins narrowing
EXPRESS PARTS PROPOSAL
A/Ss full list of inventory and price listing Express would receive order, do credit check Route to respective distributor electronically Express shipping facility Express fees 6% of price Paid 30 days after orders shipped
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Examining Express
How many of customers will Express be able to take away?Signing up for Express could create a potential trade-off between gaining newcustomers and affecting arrow's relationship with existing customers who may driftaway to pick products from different channels.
Express would expose our business to more customers.
Existing customers may bypass Arrow and go directly to Arrows competitors All transactional and about 40% relational customers may switch to Express orcould easily switch to another distributor and potentially destroy A/S low pricemodel.
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Pros and Cons of association with Express
Express business model cut cost on building new customer relationship and could
potentially reach customers outside A/S present target market
Risk losing franchise distribution or distribution due to removal of their channelmember status by the suppliers, with suppliers using Express.
Express cannot create new business as it only respond to demand, where A/Screates new business through its value added products
The reduction in the overall gross margin and slashing of prices due to competitivemarket place, And since prices are open to the public, bargain of lower prices byexisting customers may occur
Difficulty in deciding on association between commodity products andtransactional behaviour on one hand and value added products and relationalbehaviour on the other.
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Options available
Option 1: Not to associate with Express Inc. Business as Usual
Option 2: Get Associated with Express Inc.
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Go with Express
Gain access to Express potential customers Expand customer base Potentially secure competitors transactional customers
Give promotional responsibility to Express
Express Incs request to join this invite only limited distributors network that couldpotentially help them to cater to a larger market and increase sales at less thanhalf the cost of doing so via its branch network.
Sign up would expose A/S to estimated 50,000+ OEMs throughout the US andincreasing sales
Cost and time effort savings in serving and converting low price shoppers intopotential customers.
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Fundamental Value Creation of Arrows
How does Arrow create value for its customers for the price it charges
How this value is different from what suppliers can provide to customers directly
Whether firms like express can offer the same value for firms at lower prices
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Recommendation B2B Buying process
Service component is important B2B emphasizes personal selling rather than advertising. Complex buying process; takes longer duration Buyer Seller Relationship (v. close relationship) Designing Customer Solutions
B2B must understand the technical aspects of the organizations requirements;as well as knowing who influences the buying decision and why
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Not to Go with Express
Choose not to associate with Express Avoid 6% service fee Avoid possibility of losing customers if we are not always lowest price
Continue serving customers as we always have Focus on relationship customers who are either customers going in for
modified rebuy or straight rebuy.
Products need delivery that would be compromised if we partner with Express
Build relationship with customers by creating supply chain system that will providevalue-added services. Evaluate, adapt and adjust the existing business model tothe changes Express may create
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Recommendation
Do not partner with Express AND develop websites purchasing capabilities
Give 5% discount to online buyers Gain access to customers previously unavailable Give relational customers opportunity to use online purchasing as well
Create Our Own Internet Presence:
Introduce purchasing capabilities on website already in operationServe price-sensitive customers through website
Direct re purchase, online support, payment gateway, Knowledge Centre
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Discussion